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Age-Dependent Employment Protection

  • Chéron, Arnaud

    ()

    (University of Le Mans)

  • Hairault, Jean-Olivier

    ()

    (University of Paris 1 Panthéon-Sorbonne)

  • Langot, François

    ()

    (University of Le Mans)

This paper examines the age-related design of firing taxes by extending the theory of job creation and job destruction to account for a finite working life-time. We first argue that the potential employment gains related to employment protection are high for older workers, but higher firing taxes for these workers increase job destruction rates for the younger generations. On the other hand, age-decreasing firing taxes can lead to lower job destruction rates at all ages. Furthermore, from a normative standpoint, because firings of older (younger) workers exert a negative (positive) externality on the matching process, we find that the first best age-dynamic of firing taxes and hiring subsidies is typically hump-shaped. Taking into account distortions related to unemployment benefits and bargaining power shows the robustness of this result, in contradiction with the existing policies in most OECD countries.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3851.

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Length: 28 pages
Date of creation: Nov 2008
Date of revision:
Publication status: published in: Economic Journal, 2011, 121 (557), 1477-1504
Handle: RePEc:iza:izadps:dp3851
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